Retail sales in April climb
By Jeannine Aversa
Associated Press
WASHINGTON — Not put off by rising prices and increasing pink slips, consumers hit the stores in April, giving retail sales their biggest boost in three months. Wholesale prices rose modestly.
Retail sales:
Sales at the nation's retailers jumped by a surprisingly strong 0.8 percent, after two straight months of declines. Many analysts were predicting a tiny 0.1 percent rise.
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"Let's hear it for the mall rats," said economist Joel Naroff of Naroff Economic Advisors. "Apparently, the economy and the labor markets have not faltered enough to scare away households from the malls."
The good news on retail sales encouraged economists that consumers, a main force keeping the struggling economy afloat, may remain resilient in the months ahead. But it didn't erase a lingering fear, particularly among the more pessimistic analysts, that rising layoffs might cause consumers to cut back sharply on spending and tip the country into recession.
"Consumers need to remain tough while the economy is weak," said Mark Zandi, chief economist at Economy.com.
Another government report yesterday showed wholesale inflation rose by 0.3 percent in April as gasoline prices took their biggest leap in 10 months.
Economists said the reports won't deter the Federal Reserve from cutting interest rates for a fifth time this year when it meets on Tuesday. But it reopened the debate on the size of the cut: either by another half-point as many continue to believe; or a more modest, quarter-point.
On Wall Street, stocks fell as the new batch of data cast doubt over how aggressively the Fed will continue to cut rates. The Dow Jones industrial average lost 89 points to close at 10,821, while the Nasdaq index finished 21 points lower.
Over the past several weeks, there's been a roller-coaster ride of economic news. Last Friday, the government reported that the nation's unemployment rate shot up to 4.5 percent in April from 4.3 percent in March and businesses slashed 223,000 jobs. The weak jobs report stoked recession fears.
Just a week earlier, the government reported the economy grew at an annual rate of 2 percent in the first quarter, double the growth rate registered in the previous quarter, prompting economists to wonder whether the country had turned a corner.
The 0.8 percent rise in retail sales in April marked the best showing since a 1.3 percent leap in January.
Taken together, the strong figures on retail sales and the weak jobs report provide a conflicting view of how the economy is faring in the current second quarter, analysts said.
Even though part of the rise in April's sales reflected a big, 2.5 percent increase in sales at gasoline stations, reflecting higher prices at the pump, economists said there was no doubting consumers' appetite for shopping last month.
The Commerce Department's report showed that sales at general merchandise shops, including department stores, rose 2.1 percent; building supplies sales were up 1.5 percent. Car sales rose 1 percent and sales of clothing increased 1.6 percent.
Economists said discounts, cheap financing, an improvement in the stock market's performance in April and warmer weather toward the end of the month all were factors in making people feel more inclined to spend.
"Consumers have not clamped their wallets shut despite increases in the unemployment rate," said Lynn Reaser, chief economist at Banc of America Capital Management. "But if layoffs continue to rise rapidly, you'll see consumers turning more cautions in their spending," she added.
One of the reasons the Fed has been able to cut interest rates so much this year — by a total of 2 percentage points — is that inflation hasn't posed a risk to the economy.
While the Labor Department's Producer Price Index, which measures inflation pressures before they reach store shelves, rose in April after having fallen the month before, many economists didn't view the advance as worrisome.
That's because many analysts believe increased costs for energy and other items are more likely to squeeze companies' profits than be passed along to consumers in the form of higher prices — a difficult undertaking when the economy is weak.
The PPI report "bears watching, but it's not solid evidence that inflation is heating up," said Bill Cheney, chief economist at John Hancock.
The rise in April wholesale prices reflected a big, 7 percent in gasoline prices, the largest increase since June 2000, when they rocketed upward by 18.1 percent.
Over the last two weeks, the average retail price for gasoline in the United States increased 8.58 cents to $1.76 a gallon, according to the Lundberg Survey of 8,000 service stations nationwide.
Food prices, meanwhile, rose 0.6 percent in April, down from a whopping 1.1 percent increase in March.
Excluding volatile energy and food prices, wholesale inflation rose 0.2 percent in April, compared with a 0.1 percent gain in March, and slightly faster than analysts were expecting.
